Carborundum Universal Ltd

NSE:CARBORUNIV

Earnings Call Analysis

Mixed Results with Growth and Setbacks

Losses in Q2 FY '24 increased to EUR 0.86 million, up from EUR 0.5 million in the same quarter last year, with year-to-date (YTD) losses widening to EUR 1.6 million from EUR 1.1 million. Year-to-date sales dipped by 3%, but the company forecasts 8% to 10% full-year growth and expects a return to break-even by FY '25. Consolidated PBIT improved to INR 68.3 crores, up from INR 45.9 crores, marking a margin enhancement from 4.6% to 6.6%. In the abrasive segment, the company faced challenges in the retail sector but achieved 16% margins, up from 12.3%. Electro Minerals saw a YTD sales decline of 2.5%, and ceramics segement experienced an 11% growth with a margin increase from 24.7% to 28%. Overall, consolidated PBIT margins improved from 10.5% to 12.8%.

Financial Performance and Losses in Q2

The company reported a loss in the second quarter of EUR 0.86 million, which is an increase from the EUR 0.7 million loss in the first quarter of FY '24 and higher than the EUR 0.5 million loss in the same quarter of the previous year. Year-to-date sales amounted to EUR 4.4 million, a 3% decrease compared to the previous year, while losses increased to EUR 1.6 million from EUR 1.1 million. The management anticipates that losses for the full FY '24 will be around EUR 2.5 million and expects AWUKO to break even by FY '25.

Standalone Abrasives Growth and Margin Improvement

The standalone Abrasives segment in India has shown a 4% growth compared to the first half of the previous year. The industrial and precision segments experienced substantial volume growth, nearing double digits. However, the retail segment faced increased competition from Chinese suppliers and new market entrants. Despite these challenges, improved pricing and reduced input costs contributed to a margin recovery to 16% in the first half of FY '24, up from 12.3% for the same period in the previous year. The company is focused on achieving an 8% to 10% growth for the full year and continues to work on margin improvement.

Consistent Improvement in Consolidated PBIT

The consolidated profit before interest and taxes (PBIT) saw an increase, with H1 FY '24 figures reaching INR 68.3 crores compared to INR 45.9 crores in the previous year. This performance led to a margin improvement from 4.6% to 6.6%.

Challenges in the Electro Minerals Segment and Margin Pressure

The Electro Minerals segment witnessed a decline in consolidated sales, which were INR 796 crores in the first half of FY '24 compared to INR 816 crores in the previous year. Revenue for the quarter decreased by 8%, with sequential decrease of 10%. Standalone Electro Minerals performance showed growth, but faced price reductions due to Chinese market dumping. Despite the current margin pressure, the company expects future price stability and a continued focus on volume growth.

Strong Performance at VAW with Stable Outlook

The VAW segment delivered its highest-ever quarterly sales and showed significant year-over-year growth across various products. Local currency performance remains strong, though the impact of foreign exchange rates presented a differing performance when profits were converted to INR due to a weaker ruble compared to the previous year. YTD profits increased substantially, and VAW continues to operate debt-free with a stable and positive outlook.

Foskor Zirconia Faced with Lower Sales but Expected Recovery

Foskor Zirconia experienced lower sales in the second quarter, primarily due to delayed offtake by major customers and pressure from Chinese competitors. Despite this, the team is optimistic about recovering in the second half of the year and achieving a top line similar to the previous year.

Ceramics Segment Growth Amid Market Challenges

The Ceramics segment reported 11% growth to INR 552 crores in H1 FY '24, with Q2 sales increasing by 4%. The refractories, rare ceramics, and metallized cylinder business experienced robust growth in the high-teens, while engineered ceramics business faced delays in offtake. Subsidiaries in Australia and America saw significant growth, and the overall profit before finance costs and tax grew to INR 154.7 crores, indicating healthy segment expansion.

Improvement in Margins Despite Segment Variations

Overall, the company achieved improved PBIT margins at the consolidated level, reaching 12.8% in the current year from 10.5% in the previous year. The Abrasives and Ceramics segments showed margin improvement, although Electro Minerals experienced a slight decline. The stand-alone business margins improved largely due to Abrasives and Ceramics, while losses in Rhodius also decreased, contributing to better margins.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Carborundum Universal Q2 FY '24 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors. Thank you, and over to you, ma'am.

[Bhoomika Nair, analyst]

Yes. Thanks, and good morning, everyone, and a warm welcome to the Q2 FY '24 Earnings Call of Carborundum Universal Limited. We have the management today, being represented by Mr. Sridharan Rangarajan, Managing Director; Mr. P. Padmanabhan, CFO; Mr. G. Chandramouli, Adviser, Investor Relations; and Mr. Dinesh Kumar, Senior Manager of Strategic Planning.

At this moment, I'll hand over the floor to Mr. Rangarajan for his initial remarks, post which we'll open up the floor for Q&A. Over to you, sir.

[G. Chandramouli, executive]

Good morning, Bhoomika. Thank you very much. Let us start the proceeding with the disclaimer that -- good morning. During this call, we will make certain statements which reflect our outlook for the future or which could be construed as a forward-looking statement. These statements are based on management's current expectations and are associated with uncertainties, and risks are more fully detailed in our annual report, which may cause the actual results to differ. Hence, these statements must be reviewed in conjunction with the risks that company faces. Thank you.

[Sridharan Rangarajan, executive]

Good morning to all of you, and a warm welcome to our second quarter and first half earnings call for the financial year FY '24. I trust that you and your family members are safe and healthy. Today, I'm joined in the call with Mr. Padmanabhan, our CFO; Mr. Chandramouli, our Investor Relationship Adviser; Mr. Dinesh, our Strategic Planning Head. We'll begin this call with providing an overview of the company's performance for the quarter as well as the first half and then open up for questions.

Just to start with consolidated sales for H1 FY '24 were INR 2,314 crores, growing at 3.1%, contributed by Ceramics growing at 11%, Abrasives growing at 3.2% and Electro Minerals with a negative growth of 2.5%.

Consolidated sales for Q2 FY '24 were at INR 1,123 crores, with quarter-over-quarter growth of 0.6% and a degrowth of 5.7% sequentially. Growth in Q2 FY '24 over Q2 FY '23 is contributed by a 5.5% growth in Abrasives, 4.2% growth in Ceramics and a negative 7.8% growth in Electro Minerals.

Q2 FY '24 performance compared to Q1 FY '24 was a negative 5.7%, mainly contributed by Electro Minerals' degrowth of 9.7%. It is important to bring the perspective of war here. VAW, our Russian subsidiary, grew in H1 FY '24, in ruble terms, 24%; however, in INR terms, this turned out to be a degrowth of 6%.

In H1 FY '23, ruble was converted at 1.24, and H1 FY '24, ruble is converted now into 0.94. Had the exchange rate remained the same, the overall growth of CUMI in H1 would be in the range of 9.6% to 10%. We will discuss this in detail later.

PBIT of FY '24 had 2,000 -- sorry, INR 295.9 crores, with a PBIT margin of 12.8% compared to PBIT of H1 FY '23 at INR 236.09 crores. PBIT margin of 10.5% grew at 25.3%. This was contributed by Abrasive growing at 49.1%, Ceramic growing at 26% and Electro Minerals growing at 5.8%.

PBIT for Q2 FY '24 was at INR 141.31 crores. PBIT margin of 12.6% compared to PBIT for Q2 FY '23 at INR 126.6 crores, PBIT margin of 11.3%, grew 11.6% quarter-over-quarter and degrew 8.6% sequentially.

PAT for H1 was a to INR 215.1 crores, grew 28.2%. PAT for Q2 FY '21 -- '24 was at INR 101.9 crores, grew 14.5% compared to Q2 FY '23 and sequentially fell by 10%.

We move now to stand-alone. Stand-alone grew by 7.6% to INR 1,303 crores in H1 FY '24 compared to H1 FY '23. The growth was majorly driven by Ceramics segment at 10.9%, Electro Minerals at 10.9% and Abrasives segment at 4.1%. Growth in Q2 FY '24 compared to Q2 FY '23 is 5.4% compared to Q1 FY '24. There was a negative growth of 2.4% sequentially.

PBIT for H1 FY '24 was INR 232.72 crores. PBIT margin of 17.9% grew at 17.79% compared to PBIT of H1 FY '23 at INR 197.62 crores, PBIT margin of 16.3%. The growth in PBIT margin came in from Abrasives, grew by 35.7%; Ceramics, grew by 20.9%; and a fall from Electro Minerals by 20.3%.

Q2 FY '24 PBIT margin was INR 110.63 crores. PBIT margin percentage of 17.2% grew 11.2% compared to Q2 FY '23 and sequentially degrew by 9.4%.

PAT for H1 FY '24 was INR 175.9 crores. This is an increase of 21.7% compared to H1 FY '23. PAT for Q2 FY '24 was INR 82.8 crores, resulting in a 15.4% growth compared to Q2 FY '23 and 11.1% degrowth compared to Q1 FY '24.

And now move to the segments. I'll take up first Abrasives. Abrasives consolidated revenue for H1 FY '24 was INR 1,029 crores, growing at 3.2% compared to H1 FY '23. Abrasive consolidated revenue for the quarter grew 5% to INR 510 crores compared to INR 484 crores in Q2 of the last year but degrew by 1.6% sequentially. H1 FY '24 standalone Abrasive was at INR 568 crores and grew by 4.1% compared to H1 FY '23. Standalone Abrasives grew by 3.4% to INR 285 crores quarter-over-quarter and almost flat sequentially.

America. Our subsidiaries in America grew at H1, Q2 and sequentially, very healthy. VAW H1 FY '24 grew 22% in ruble terms. However, in INR, this resulted in a decrease of 7.3%. H1 FY '23 ruble to INR was converted at 1.24 whereas H1 FY '24, the ruble to INR is converted at 0.94. Quarter-over-quarter growth in ruble was also good at 24%.

Rhodius. Rhodius in Q2 achieved the net sales of EUR 15.2 million compared to EUR 14.2 million in Q2 of FY '23 and EUR 15.5 million in Q1 of the current year. We communicated in the last call that the Rhodius is planning to be flattish at top line due to softening of the demand in parts of Europe and competitive pricing in the market. We still maintain the same expectation. The price increase put up to offset the cost resulted in lower order intake, which impacted the overall sales.

On a YTD basis, sales degrew by 5% to EUR 30.7 million from EUR 32.2 million during the last year. We delivered a loss of EUR 4.7 million, which included one-off cost of EUR 2 million and a PPA write-off of EUR 2.8 million. On a YTD basis, we are at a loss of EUR 1.4 million against EUR 2 million during the last year, which means losses are coming down.

As told during our last call, we expect the full year a similar loss in line with that of the last year due to softening in demand and an increase in energy costs. We are maintaining our forecast. This is our current outlook. We will have another 6 months to explore anything better.

AWUKO. Coming to AWUKO's performance. This quarter, we achieved EUR 1.9 million sales against EUR 2.5 million in Q1 of the current quarter and EUR 1.95 million in Q2 of the last year. The losses in Q2 was EUR 0.86 million against a loss of EUR 0.7 million in Q1 of FY '24 and EUR 0.5 million in Q2 of the last year. On a YTD basis, we achieved EUR 4.4 million sales, which is 3% lower compared to the last year and the losses at EUR 1.6 million against EUR 1.1 million during the last year.

As communicated earlier, we expect the losses in FY '24 will be around EUR 2.5 million. We expect AWUKO to break even by FY '25. We've maintained the same outlook.

Stand-alone Abrasives. In India, we have grown 4% compared to H1 of the last year. There has been good growth in terms of the volume in industrial segment and precision segment, almost close to a double-digit growth. However, in retail segment, we are facing challenges after increases in supplies from China and new entrants in the segment. Better realization and softening in input costs has helped to reach the margins to the previous level of 16% in H1 FY '24, which was at 12.3% in H1 of the last year.

We expect to hit overall 8% to 10% growth in the full year, as told during the previous earnings call. The focus has been on improving margins through product mix optimization, increasing sales in value-added products and improving internal efficiencies.

Consolidated PBIT of H1 FY '24 was at INR 68.3 crores compared to INR 45.9 crores, resulting in margin improvement from 4.6% to 6.6%. Q2 FY '24, PAT was INR 37 crores against INR 28 crores in Q2 of the last year and INR 31 crores in Q1 of the current year. The increase predominantly coming from stand-alone margin movement from 12.3% to 16%, better performance at Sterling, America, VAW, lower losses at Rhodius and closure of China helped to achieve this.

Moving to Electro Minerals. Electro Minerals, on a consolidated basis for H1 FY '24, had a sales of INR 796 crores compared to INR 816 crores in H1 FY '23. Electro Minerals consolidated revenue for the quarter was INR 377 crores versus INR 410 crores in Q2 of the last year, resulting in a decrease of 8% as it degrew 10% sequentially.

Stand-alone Electro Minerals for H1 FY '24 was INR 390 crores, and it grew by 11%, degrew at 2% sequentially, but grew at 12% quarter-over-quarter. At H1, volume growth in alumina and SiCs are on high-teens. However, price dropped due to dumping by Chinese producers. The strength is witnessed in many geographies. We will give focus -- we will stay focused on volume growth. We expect price stability will come. Margins could be under pressure and the stress in the interim.

VAW. Coming to the performance of VAW, the performance has been good in local currency and delivered its higher-ever quarterly sales of RUB 2.5 billion in this quarter, compared to RUB 1.82 billion in Q2 of the last year. Also, in H1 basis, sales grew by 24% to RUB 4.9 billion. The operations are running well, and there has been an increase in sales volume compared to the last year, 4% in silicon carbon, 19% in abrasives, 7% in refractories.

Also, price realizations are better compared to previous years. When converted to INR, the story looks a little different and shows downward performance because of a stronger ruble during Q2 of the last year where it was at RUB 1 equivalent to INR 1.33, whereas it has been -- become much weaker at INR 1.01 in Q1 FY '24 and INR 0.88 in Q2 FY '24.

We delivered a profit of RUB 418 million, same as during Q1 of the current year against RUB 236 million during Q2 of the last year. On a YTD basis, profit increased significantly to RUB 835 million compared to RUB 461 million during last year. For H1, rubles were converted on average, RUB 1 equivalent INR 0.94 for this year compared to INR 1.24 during H1 of FY '23.

Capacity utilization is normal when they are able to sell more in Russia. And on YTD basis, the mix towards Russian sales volume from -- domestically has increased to 59% compared to [ 58% ] during the last year. VAW is able to collect all its receivables. They continue to be debt-free, and outlook remains stable and positive.

Foskor Zirconia. FZ has lower sales in Q2 '24 -- FY '24, is majorly on account of postponement of offtake by the top 3 customers and price pressure from Chinese suppliers. The team is confident to compensate in second half of the year and expect a similar top line as that of last year. Overall, the quarter -- for the quarter, PBIT at consolidated level was at INR 62 crores against INR 69 crores in Q2 of the last year and INR 74 crores in Q1 of the current financial year.

On YTD basis, it grew by 6% to INR 136 crores. [ Several ] margins were significantly impacted during the first half of the year compared to the previous year, mainly because of dumping by China.

I'll move now to Ceramics. Consolidated Ceramics in H1 FY '24 grew by 11% to INR 552 crores. Q2 FY '24 were higher by 4% at INR 265 crores as against INR 254 crores in Q2 FY '23 of the last year. Sequentially, it degrew by 8%.

Stand-alone Ceramics at H1 FY '24 grew by 11% to INR 448 crores compared to H1 FY '23. Q2 FY '24 sales of Ceramics was INR 217 crores, growing 3% quarter-over-quarter and 6% degrowth sequentially. The refractories, rare ceramics, metallized cylinder business grew in H1 FY '24 very well in high-teens.

Delay in offtake in engineered ceramics business resulted in 11% growth as of H1 FY '24. Subsidiaries in Australia and America registered a significant growth. Profit before finance costs and tax at consolidated level for H1 FY '24 was INR 154.7 crores, growing at 26% compared to H1 FY '23. Q2 FY '24, PBIT was INR 74 crores, growing by 14% quarter-on-quarter basis but degrew 9% sequentially at consolidated level.

The PBIT margin has improved from 24.7% in H1 FY '23 to 28% in current financial year. All companies in the segment contributed to margin improvement.

Now I request our CFO, Mr. Padmanabhan, to cover about PBIT margin, debt positions, cash flow and CapEx.

[P. Padmanabhan, executive]

Thank you, sir. PBIT margin, consolidated level. Consolidated PBIT margin improved from 10.5% in H1 of last year to 12.8% in the current year, mainly driven by 3 segments. PBIT margin for the quarter improved from 11.3% to 12.6% in the current quarter by -- drop by 40 basis points sequentially.

On a quarter-over-quarter basis, margins have improved in Abrasives and the Ceramics segment, with a marginal drop in Electro Minerals margin. On a sequential basis, margins improved for Abrasives but dropped marginally in Electro Minerals and Ceramics. At the stand-alone basis, margin has improved from 16.3% to 17.9% in H1 of current financial year. This is majorly driven by Abrasives, then Ceramics but drop in Electro Minerals segment.

PBIT margin for the quarter improved from 16.3% to 17.2% in the current quarter and dropped 130 basis points sequentially. The margin improvement was contributed by Abrasives and Ceramics quarter-over-quarter, whereas on sequential basis, the unallocable expenses increased, brought down the overall margin. But broadly, all the segmental performance is good.

On the Abrasive front, on H1 basis, PBIT margins improved from 4.6% to 6.6% at consolidated level, majorly contributed by stand-alone business, increasing margin from 12.3% to 16%. At consolidated level, PBIT margin for the quarter improved from 5.8% to 7.3% in the current quarter and also improved by 130 basis points sequentially. This was due to increase in the margins of stand-alone business from 12.5% to 16.7% in the current quarter on back of better realization and softening in input costs. Stand-alone Abrasives margins improved by 150 basis points sequentially as well. Also, the losses coming down in Rhodius contributed to improvement in margins.

On Electro Minerals. In H1, at consolidated level, PBIT margins have improved from 15.1% during last year to 17% in the current half, majorly contributed by the Russian subsidiary on account of higher volumes and better realization. The margins of stand-alone business dropped significantly from 16.3% to 11.7%, mainly because of the dumping by China, even though volume pickup is there.

For the quarter, PBIT margins at consol level dropped from 16.9% to 16.3% quarter-over-quarter basis and also dropped 130 -- 140 basis points sequentially. The margins of stand-alone business dropped significantly from 15.8% to 11.9% in the current quarter. However, it was better by 40 basis points sequentially.

In respect of the Ceramics business, at the consolidated level for H1, PBIT margins improved from 24.7% to 28%. Standalone Ceramics improved from 24.4% to 26.6%. American subsidiary did significantly well compared to last year. The margin of Australian subsidiary has also improved. For the quarter, PBIT margins at consol level improved from 25.4% to 27.8% quarter-on-quarter basis but dropped 40 basis points sequentially. The margins of stand-alone business improved from 25.5% to 26.2% in the current quarter but dropped by 65 basis points sequentially. The higher volumes and better product mix contributed to the higher margins compared to last year.

On the debt position, there was INR 23 crores of debt at the stand-alone books, and the total debt on a consolidated basis was at INR 140 crores compared to INR 178 crores as of June 2023. The debt-to-equity ratio was at 0.05 at consolidated level. Cash and cash equivalents, net of borrowings, was a surplus of INR 221 crores, meaning the net debt after adjusting for cash equivalents is almost -- is 0.

CapEx. The CapEx spend so far at consolidated level is INR 97 crores, and we expect for the full year '24, we will be incurring a CapEx of around INR 260 crores to INR 280 crores as against INR 300 crores as was communicated earlier.

Our free cash flows for H1 in the current year at consolidated level is 69 percentage of PAT compared to negative 126 percentage of PAT in last year first half. At stand-alone level, it is also at 68 percentage of PAT compared to negative 49 percentage of PAT in H1 of last year. This is mainly on account of significantly higher net cash flow/inflow from operations compared to last year. Stand-alone, INR 22 crores in H1 to INR 150 crores, and consolidated, INR 38 crores -- negative INR 38 crores to INR 243 crores in the current quarter, mainly because of the better working capital management and lower CapEx spend compared to previous year.

I would now request Mr. Sridharan to summarize.

[Sridharan Rangarajan, executive]

So I would like to summarize the following 10, 12 points. [ So ] we achieved a consolidated sales to INR 2,314 crores in H1 FY '24 and a PBIT of INR 296 crores, with PBIT margin of 12.8%. Sales grew at 3.1%, but PBIT grew by 25.3%. PBIT margin improved by 230 bps.

It's important to bring the perspective of VAW here. VAW grew in H1 FY '24, in ruble terms, 24%. However, in INR terms, has a degrowth of 6%. Had the exchange rate remained the same, overall growth of CUMI in H1 would be 9.6% to 10%.

In H1, FY '24 -- sorry, CUMI cash -- remains a debt-free company. It means free cash generation is very good, free to PAT at 69%. Overall performance of the company during the first half of year is good. Volume and price growth is good in refractories, Ceramics and Electro Minerals. Major portion of our Abrasive business, volume growth is very good. We need to focus on the stand-alone retail segment. That will be our focus for the coming few quarters.

[ It is ] standalone growth could be in the range of 10% to 12% against what we communicated last time at 15%, and consolidated could be in the range of 5% against earlier forecast of 10%, largely because of the exchange impact of ruble. Stand-alone and consolidated PBIT margins compared to FY '23 should improve.

With that, we will end up opening remarks and to open up for the question-and-answer question. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Ravi Swaminathan from Avendus Spark.

[Ravi Swaminathan, analyst]

My first question is with respect to the Abrasive business retail segment. Which are the sectors which are slowing the growth with respect to this particular subsegment? And same is the case with engineered ceramics also, so which are the sectors which are seeing a slowdown in terms of overall growth, which is driving lower growth of both [ Ceramics ]?

[Sridharan Rangarajan, executive]

Yes. Thank you, Swaminathan. First of all, I would say there is no slowdown in the sector. What is happening in retail is competitive pressure of price dumping by Chinese competition as well as some of the people outside of the traditional Abrasive business coming into Abrasive business, particularly on the lower end of the business, to leverage their distribution strength, which I'm now referring to paint business, which I think we have been talking for quite some time. That is what is happening and not a degrowth of the particular industry or our sector.

Similarly, on the engineered ceramic sides also, there is no degrowth of the industry or our sector. What is happening is a particular customer trying to clear their inventory as well as switching from one model to the other model is basically slowing down their order intake from us. They have communicated this, and we are recalibrating it, and we expect things to become normal, which we have already considered in our forecast.

[Ravi Swaminathan, analyst]

Got it, sir. And you had talked about the Chinese competition or dumping in both the Abrasives and the Electro Minerals segment. This is something incrementally, I think, as a reference has gone up over the past few quarters. So how intense is the competition? Is it almost back to pre-COVID levels? How should we think in terms of profitability given the fact that usually Chinese products are very aggressive in terms of pricing, and therefore, can it have an impact on the profitability, especially on the Electro Minerals?

[Sridharan Rangarajan, executive]

So I think the trend of Chinese competition, we are witnessing not just in India, across various geographies. And across many sectors, not only in Abrasive, Electro Minerals, Ceramics, you could see the same thing in electronics, you could see the same thing in auto parts, many factors. Some sectors, they are also a reversal of the trend by Chinese competition increasing the price because they are kind of from a 0...

[Ravi Swaminathan, analyst]

Hello?

[Operator]

Members of the management, can you hear us? We seem to have lost the line for management. [Technical Difficulty]

We have the line for the management reconnected. Over to you, sir.

[Sridharan Rangarajan, executive]

Sorry. My apologies. I think the line got disconnected. I was just telling that the Chinese competition is there, not only in our business but across various different business. You know what's happening in China. So there's always pressure from their business to sustain. They're trying all of their best.

We have also witnessed there are sectors where they have reversed their trend. They used to work on a no cash -- sorry, no-profit basis, then went to no-cash basis. Then they are reversing that trend. I don't think they can keep doing this beyond a point. So I feel that we will continue our trend of holding our volume, which is what we did in our Electro Minerals business.

As I said, we have a double-digit volume growth in Electro Minerals business domestically, and we will continue that strategy. And I think we are also equally working on bringing costs down, which I think, to some extent, volume growth helps us to bring the cost down. I feel that we need to give a few more quarters to see how this trend will continue.

[Operator]

The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

[Bhavin Vithlani, analyst]

The question is on the Ceramics. If you could dissect the segment between the 3, refractory segment, wear ceramic part and the engineered part and give us a growth of -- what's the growth in the second quarter and the first?

And you did mention about some destocking and changeover to a new model by the customer. So how long is this period going to be? And how do you see the growth here? Because this is a segment where you've been guiding for a 25% growth. So a slowdown to 4% seems a little too stark.

[Sridharan Rangarajan, executive]

Yes. I think as I told in my opening remark, I think in refractories, we are growing at volume and price at double digit, and we are also growing well in wear ceramics and metallized ceramics and gained both volume and price in double digit.

Engineered ceramics is where we have a blip, which I feel that, as I explained to you, it could take a couple of quarters more before they readjust their destocking and getting into the new model position, and then we'll be back. And I think this has been communicated. They are working with us in this manner. So I don't think we have a surprise. We know that this is happening and they have been communicating, working with us, including the new model development. So we should be back. I don't think -- it's a temporary blip.

[Bhavin Vithlani, analyst]

Understand. Just a follow-up on this, because the earlier calls, the guidance was that we can see not arithmetic, but geometric growth in the Ceramics largely driven by the new energy segment. So would we see that after a couple of quarters where there is a changeover from a model A to model B, we would catch up and more than make up on the growth?

[Sridharan Rangarajan, executive]

See, as far as broadly, I would say, see, Ceramics, we have been growing at a CAGR of somewhere in the range of 20-plus percentage, right? And I don't see a reason why that should drop. And as I said that our America business, Australia business, India business, all firing well. And some of the areas that we are working on is doing fine. So I think those type of trends should continue is what I feel.

[Bhavin Vithlani, analyst]

Appreciate it. On the Abrasives side, the industry had gone for antidumping request to the government, especially due to the Chinese dumping, and you also mentioned about this. So is there any progress on that front? And in terms of pricing, how different is the pricing of the large organized players like yourself and GNO versus the Chinese? And the kind of cost action that you mentioned, how much can that help you to regain the lost market share?

[Sridharan Rangarajan, executive]

We did represent through the proper channels on the price dumping methodologies and put up our case as an industry. And I think one set of the government supported this and recommended a set of actions. But the other set of the government did not take this on and proceeded with it. So that is the reality. And -- but we will continue our pursuit, and we feel that, I think, this cannot continue long. And I feel that a certain amount of this interim challenge we must face and we will get back as a business.

[Bhavin Vithlani, analyst]

Great. Just last question from my side. In the annual report, you did speak about positive progress on the high-purity SiC and the high-purity graphite/graphene which one part will be used for the electronic semiconductors and others for the battery part. If you could just help us with the progress so far and where are we in that journey? And how much acceleration to the growth could we expect once we are able to commercialize this?

[Sridharan Rangarajan, executive]

Mr. Bhavin, I want -- I did talk about this in the last call, and I want to reiterate our position clearly here. This is a 3- to 5-year work. I think it will take time. It would be difficult to update our quarterly progress, but what we can tell is largely is that we have established a high-end purity level. We are able to produce product. We have done testing on the quality of our product.

We've grown crystals out of that. We have wafered products out of the crystal that has grown, and the qualities of them are all meeting the standards. We are working and progressing in this direction, and I would defer to future actions only when we get into a clear position of what we can do with that. That's where I would give you a broad idea.

[Operator]

The next question is from the line of Harshit Patel from Equirus Securities.

[Harshit Patel, analyst]

Sir, my first question is on VAW. What would be the current realizations for silicon carbide vis-à-vis the full year FY '23? As you have mentioned, there has been an increase in the overall realization. This is a bit surprising given that even the realizations are falling in the domestic alumina business. Even globally, most of the commodity prices are falling, including that of Electro Minerals. So how is it that we have been able to post a growth in the realizations over there?

[Sridharan Rangarajan, executive]

Mr. Harshit, I think we are talking silicon carbide, which is totally different to aluminas. And as far as our competitiveness in VAW, as I said that we have a capability to produce at the best cost possible in the world and capability to swing the mix between domestic and export out of the Russia. And that makes this product a reasonably capable of putting up prices as well as some extent of, let's say, for example, when you sell products in dollar and euro and then as we saw that some of the depreciation of ruble coming through.

So obviously, there's going to be a price realization change that would also come through because of the exchange gain that -- in ruble terms that what we will have. But we see that even in terms of a dollar pricing, as well as ruble pricing, there's a small, I would say, a small drop in terms of the dollar and euro pricing, probably very, very, very really small drop. And -- but the realization in ruble is really strengthening. So this is how it's happening.

[Harshit Patel, analyst]

Understood. Sir, my second question is on the Abrasives. Have we done any pricing actions in the last 2 to 3 quarters, either on the upward size -- upwards or downwards? Or are you maintaining the same prices? Is there a possibility of downward revision given that the RM cost pressures have broadly come off now? If that is the situation, then what explains such a huge jump in the stand-alone margin? Is there any impact from the product mix change as well, given that we have posted more than 16.5% margins, which are very different from what we have been doing in the past few quarters?

[Sridharan Rangarajan, executive]

So I think we should look at Abrasive in the lens of last, say, 3, 4 years. We have been posting a 15% to 16% PBIT margin. There was a drop because of the cost push and then the capability to put up the price and realize that, which was happening early last year, and that's how you are seeing a lower PBIT margin coming through. And we have been telling that we are taking respective actions on that. And that's what we are able to get back to our normal level of PBIT margin.

Second is the mix between precision and industrial versus retail also is helping us to some extent a better PBIT margin. Coming to your question of are we putting up the price upward or downward, we are trying to do and adjust our price according to the market to as -- our aim is to secure the volume, and this is where we would focus on. And as I was just telling in my opening remarks, we are doing well in precision. We are doing well in industrial. Our challenge largely remains in the retail segment.

[Harshit Patel, analyst]

Understood, sir. Sir, just a last small bookkeeping question. The unallocable expenses below PBIT, they have done quite sharply in the last 2 quarters. We thought that this would taper off since the majority of integration processes of AWUKO and Rhodius would have been over by now. So how should we read this?

[Sridharan Rangarajan, executive]

No, I think some of the unallocable expense at the YTD level is comparable to the last year. I don't think it's any different. Let me just take my note for a second. Yes, I think YTD Q2 was INR 50 crores, and YTD Q2 this year is at INR 51.5 crores. It's very much in line.

[Harshit Patel, analyst]

Sir, we thought this would taper off actually, given that the integration processes are broadly over of the German acquisitions. So that is why I was...

[Sridharan Rangarajan, executive]

This should continue. I think last time also at the beginning of, I would say 2, 3 calls before I was telling that the trend should continue. I don't think it should taper off. We will probably -- at the end of the year, we will give more guidance on the next year.

[Operator]

The next question is from the line of Raj Shah from Marcellus Investment Managers.

[Raj Shah, analyst]

So my question is on, again, the stand-alone Abrasive side. Your opening remarks mentioned about new entrants that are coming to the market. The question was, how serious are these players and who are the players? How impactful are their -- is their presence for our retail segment revenue?

[Sridharan Rangarajan, executive]

So Mr. Raj, I think we talked about this is largely, it's the paint sector where, as you know, the paint business is also going through a bit of a high degree of competition and then each of the paint majors are looking for opportunities to diversify. And one of the opportunity for them is to make use of their distribution channel, which is the hardware paint counters, mainly paint counters, where abrasive products are put through like sheets, rolls and those products are put through.

So these are the players who are that -- what we referred as new entrants. And this is quite expected and normal for any business, which has got a good degree of leverage to make use of it. But I think we will stay focused on our core business, our capability of product strength, innovation and the distribution strength that what we have built. Plus, working with customers in industrial and precision will continue. But we will see. We are cognizant of this competition. We are working towards responding to this competition. And this is where I said that an impact on the retail segment is there.

[Operator]

The next question is from the line of Amit Anwani from Prabhudas Lilladher.

[Amit Anwani, analyst]

My first question is on AWUKO and Rhodius. So AWUKO, this quarter, we did some EUR 0.86 million losses versus EUR 0.7 million, which actually widened. So just wanted to understand from you, are we sticking to -- are we on track on the long-term plans on these 2 subsidiaries that you guided breakeven for AWUKO by next year and, I think, that 12%, 13% margin for Rhodius in -- by FY '26? So just wanted to have an update on these 2 subsidiaries.

[Sridharan Rangarajan, executive]

So AWUKO breakeven at FY '25, we are still working on that. That's our current focus as I mentioned in my opening remark. PBIT margin getting back to 12% for Rhodius by FY '27 is still very much on track from our side.

[Amit Anwani, analyst]

Sure. Sir, my question on retail abrasives, which you already highlighted, but you did mention that you're expecting to come back here, and the growth in stand-alone Abrasives you're confident of some 8%, 10%. So how are we dealing this Chinese competition, which you already just highlighted? And what would be our strategy that we are confident of growth despite these challenges here?

[Sridharan Rangarajan, executive]

Yes. I think we are expanding our retail network. So let's say, some of the geographies that currently we are not that much present, we are expanding it, so putting more feet on the street. We are investing on the technology in terms of connect and then how do you work with the retail counters and even like perhaps painters, artisans, that kind of a connect.

We expect this type of work would take about 18 months to 24 months in terms of making this change a significant result to come up. And I think because of our knowledge and expertise in the core Abrasive business, we will be able to do this. And we should do that, and that's the right way of responding to the competition like this. So that's the strategy that we'll work on.

[Amit Anwani, analyst]

All right. My last question on Electro Minerals. Synthetic brown-fused alumina used to be even up the breakthrough a couple of quarters back. If you would like to highlight how was the contribution in growth here? And also same thing for the SOFC, how is the contribution in growth this quarter and any update for upcoming quarters here?

[Sridharan Rangarajan, executive]

As I said, I think when I talked about aluminas, which covered including the synthetic alumina, which -- where we are securing very good volume growth. And I think as I said that the price pressure, which is a mix of competition plus the Chinese dumping, which is what is causing this, we expect that this trend should reverse. It's difficult to put up a broad time line, but I think I expect this should come back.

[Amit Anwani, analyst]

Sure, sir. On SOFC?

[Sridharan Rangarajan, executive]

Sorry?

[Amit Anwani, analyst]

How was the contribution from SOFC?

[Sridharan Rangarajan, executive]

So solid oxide fuel cell, is that what you are referring to?

[Amit Anwani, analyst]

Yes, you are right, sir.

[Sridharan Rangarajan, executive]

They are doing fine, and I think we are continuing our good work there.

[Operator]

The next question is from the line of Mohit Pandey from Citi.

[Mohit Pandey, analyst]

Sir, the first question is, again, on engineered ceramics. Sir, you mentioned one of the key customers moving from product A to B. I just wanted to clarify if you have certifications in place to cater to product B as well or that is something you have to work on over the next 2 quarters? That was one, sir.

[Sridharan Rangarajan, executive]

Yes. Good question, Mohit. I think we have been working with them in co-creating this product B. So it's a work that has been going on with the customers. So as soon as they launch, we should also be in a position to start [ supplying ].

[Mohit Pandey, analyst]

Okay, sir. That's clarified. Secondly, sir, margins were quite strong despite the deceleration in growth on the Ceramics side. So once the growth comes back to the earlier trajectory after, say, a couple of quarters, is 30% kind of margins a possibility in Ceramics?

[Sridharan Rangarajan, executive]

Yes. So as I said, after the entire bouquet of Ceramics business, there's one segment where we have a, let's say, the order postponement, et cetera. And once those volumes comes, our margin should improve, and I am not in a position to comment whether we will hit 30% or not. Definitely, currently, let's say, we are doing in the range of about 27, 28 percentage, I think that should continue and probably slightly improve upon.

[Mohit Pandey, analyst]

Okay, sir. Sir, last question is on the CapEx. I think in the opening remarks, it was mentioned CapEx of INR 260 crores, INR 280 crores versus INR 300 crores earlier guidance. So where is the reduction coming from, which businesses if you could put some light there?

[Sridharan Rangarajan, executive]

Yes. We said INR 260 crores to INR 280 crores. I don't think there is any particular deferment, but I think -- it's an -- when you execute a CapEx, sometimes the delay in execution will also come in play, and we will not be in a position to capitalize within the time frame that we are looking at. That is what -- there is no, let's say, that we are deferring a particular CapEx program, et cetera.

[Operator]

The next question is from the line of Charanjit Singh from DSP Mutual Fund.

[Charanjit Singh, analyst]

Sir, especially on the Abrasives market, if you can touch upon now Chinese and these new paint players who are coming into the market, what percentage of the market they will be addressing? And right now, in terms of the mix of precision and industrial and retail, what is that mix for us right now?

[Sridharan Rangarajan, executive]

They are about 70% is our mix. 30% is retail. And so in that -- this is our mix, and I think probably the market should represent close to that. And in that, these are the new players coming and working on it in certain select segment within that 30%.

[Charanjit Singh, analyst]

So is it a correct understanding that these new players and the Chinese players are participating mainly in this 30% of the market?

[Sridharan Rangarajan, executive]

Yes.

[Charanjit Singh, analyst]

Okay. And do you see the paint players also scaling up in the industrial segment with the kind of capabilities and their understanding is there?

[Sridharan Rangarajan, executive]

It's going to be -- it's like we want to enter into, let's say, a paint business or any other business. It's going to be tough for anyone to change and get the knowledge and expertise required in particular business. It's not impossible, but I'm just saying. But whereas in the retail are there low level on the sheets, rolls, mainly working on a traded product using their reach. That is what is the current focus of those people.

[Charanjit Singh, analyst]

And sir, in terms of the realization, how do you see the realization now moving forward in the Abrasives market? Do you see further pressure on the pricing or now prices should stabilize? Any thoughts there?

[Sridharan Rangarajan, executive]

So I feel the -- in the retail, I feel that competition would continue, and there will be an interim price pressure. But in industrial and precision, which is largely working with customers, working with an application, winning through that is largely a function of how well they benefit out of our product. So there could be a price pressure on the retail side.

[Charanjit Singh, analyst]

Okay. Sir, lastly, on the metz cylinder, if you can just give us any update in terms of how is that market performing because a large part is exports within that market? And what is the future outlook there?

[Sridharan Rangarajan, executive]

So as I said in our earlier question, we are doing well in Metallized Cylinders segment. The growth is very good, and we are performing well. We are probably the #2 player in the world and that we are doing it well.

[Operator]

The next question is from Saif Gujar from ICICI Mutual Fund.

[Saif Gujar, analyst]

So I have 2 questions regarding VAW, that is the Russian subsidiary. First is how much would be domestic and external sales breakup for first half?

[Sridharan Rangarajan, executive]

It is -- 59% is domestic.

[Saif Gujar, analyst]

And out of the remaining 41%, what would be the exposure, it would be mainly euro or dollars [ only ]?

[Sridharan Rangarajan, executive]

It's a mix of both side. I don't think any particular -- it depends. Some euro country also starts paying in dollars. It depends on the customer to customer.

[Saif Gujar, analyst]

Okay. And just a follow-up on VAW. So for the first half of this year, if you can give us the numbers regarding PBIT for VAW for first half, along with the cash flow generated from operations? And how is the same getting allocated in terms of dividend payout to CUMI or CapEx or debt repayment for first half?

[Sridharan Rangarajan, executive]

Yes. So the -- as far as the dividend payment, it happens once a year, and that could happen sometime June, July of next year. But as far as the PBIT is concerned for the first half, I think I mentioned in my call, it's about RUB 1.1 billion versus RUB 663 million of last year.

[Saif Gujar, analyst]

And so are we able to repatriate it fully? Or are there some restrictions going ahead?

[Sridharan Rangarajan, executive]

No issues so far.

[Operator]

We have one last question. The last question is from the line of Prolin Nandu from Goldfish Capital.

[Prolin Nandu, analyst]

Two questions from my side. One is on the retail abrasive segment. There, again, I mean, lots of questions on that. You mentioned about 2 types of competition. One is Chinese, which is probably gaining on price. Another is paints, which is probably gaining on distribution. But when it comes to quality, I think our quality of these retail products would be far superior. So in terms of the market trend changing and people using better-quality products, how is that trend? And do you think that in -- I mean during COVID when Chinese competition was not there, there were some people who had shifted to products of higher quality. Have they now shifted back because of pressures in their business? And going forward, how do you see the shift towards quality products and which will benefit us in the 3 to 5 years' time?

[Sridharan Rangarajan, executive]

So thank you. I think I would say in a window that you're looking at, 3 to 5 years, where we need to rework our retail reach and distribution model, I think quality will have a good play and people will start looking at their effort that they will put to use and the [indiscernible], and also, the per piece costs that they would have will all come into play, and I think I feel that in the long run, quality will have a play.

[Prolin Nandu, analyst]

Sure, sir. And second question would be on your M&A strategy, right? I mean how is the pipeline looking in terms of -- I mean are there some companies that you're actively evaluating? And given whatever is going on in the global market, do you think -- I mean would there be something which will be, I mean, asset available at a good price? Or would you like to probably wait for some calm in the market before you go ahead with the acquisition? Some color on your M&A strategy would help.

[Sridharan Rangarajan, executive]

See, if there are assets at a good price, we are always interested in looking at that. And we, as a player, are looking at long-term horizon. There could be some current geopolitical tensions, other things happening. But I think these things, you can't figure out a decade where there was no geopolitical tension. And issues always remained, not in this century but even if you look back many centuries back as well. So we are committed to our core business, and we feel that these areas are bound to grow, and wherever good opportunity comes, we will definitely look at it.

[Operator]

That was the last question. I would now like to hand the conference back to Ms. Bhoomika Nair for closing comments.

[Bhoomika Nair, analyst]

Yes. Thank you, everyone, and particularly the management for giving us the opportunity to host the call. Thank you very much, sir, and wishing you all the very best. Any closing remarks from your end, sir?

[Sridharan Rangarajan, executive]

Well, I think I just summarized and I would reiterate that majority of the business, volumes and prices are there. There are select segment where we need to work.

Retail abrasive is one such segment where we need to really work, and we know what we should do, and we are working towards that. And I expect 18 months, 24 months, we should have the results starts playing out. Margins are good. Volumes are good. Restated impact is there, but I think those are all things keep happening. But I think if you look at excluding that, I think broadly, the business growth is in direction. Cash flows are good. And I think we continue to grow in that trajectory. And we feel that there could be some interim challenges like the ones that we are facing, but I think we will have programs to address this. We are confident and -- about the guidance that what I just said in the closing remark.

Thank you and all the very best and wish you all a very happy Diwali and be safe and be healthy.

[Bhoomika Nair, analyst]

Thank you very much, sir.

[Sridharan Rangarajan, executive]

Thank you.

[Operator]

Thank you very much. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.